Economies are more resilient to terror than you think

After the deadly terrorist attacks in Brussels on Tuesday, the financial media had one overwhelming concern: How will the markets react?

This is pretty typical. Every time there's a terrorist attack, the business and economics world quickly turns to reporting how stocks are digesting the news. Now, I am sympathetic to journalists that have to cover their beats, but there actually wasn't much of a response to the Brussels attacks in the financial markets. There certainly was no panic.

A few airline and hotel stocks took a modest 2-to-4 percent hit, as flights and travel in and out of Brussels were canceled. Belgium's stock market fell 0.3 percent, the French and German stock markets initially fell 2 percent, and the S&P 500 fell 0.5 percent. But by Tuesday afternoon they had all recovered the initial loss or were higher than where they'd started before the drop in the morning.

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A few stories wondered if new monetary stimulus from the European Central Bank (ECB), aimed at helping Europe's faltering economies, may have cushioned things. But the thing is — and you wouldn't realize this given the attention business media tends to pay to financial markets in the aftermath of terrorist attacks — muted responses are actually the norm.

When CNN Money talked to Sam Stovall, a U.S. equity strategist at S&P Capital IQ, about this, he pointed out that Priceline, Expedia, airlines, and similar stocks only dropped 1.5 percent in response to the Paris attacks last year; the S&P 500 fell just 1 percent after the 2000 London subway bombing, and recovered within a week; it fell 1.5 percent and 2.3 percent after the Madrid bombings in 2004 and the Boston Marathon bombing in 2013, respectively, and recovered within two weeks on both occasions.

Historically, stocks markets have fully recovered within a week of most terrorist attacks, going all the way back to 1972. Yet the general assumption seems to be that terrorist response should send the financial markets into a tizzy, given how often surprised commentators note this or that attack has caused no such thing.

Some of that assumption may stem from 9/11, which was the noticeable exception to the trend. The New York Stock Exchange was closed for several days after, and fell 7.1 percent when it reopened. The Dow Jones dropped by 14 percent, and the S&P 500 by over 11 percent. But even then the recovery only took a month.

Growth in the real economy — which is what people in the upper echelons of the income ladder base their decisions on when buying and selling in the stock markets — has been no less resilient. Research suggests that terrorist attacks in advanced western economies like the U.S. have shaved a mere fraction of a percent off GDP growth at most. In fact, the national security response to 9/11 arguably hurt the U.S. economy more than the attack did.

The story is admittedly different for poorer and developing countries, which are more vulnerable to disruption. Terrorist attacks in those countries seem to reduce growth by 1.4 percent, in general.

But the point is economies are actually pretty resilient things, and the financial markets only tend to panic in response to changes in the fundamentals of economies: supply and demand shocks, sudden catastrophic changes in credit flows, faltering industrial sectors, and the like.

There are all sorts of important questions around terrorist attacks, involving geopolitics and civil rights and military action and law enforcement, not to mention human stories about grief and loss and heroism. But the economic infrastructures of societies — and rich, advanced, western societies especially — tends to repair themselves pretty quick after an attack like this. Generally, there's just not much of a story to be found through that particular lens.

My fellow economic and business reporters who have to run around reporting on the S&P every time a terrorist sets off a bomb somewhere would be better off if their industry wasn't so slavishly tied to the news cycle.